The Levelling Up, Housing and Communities (LUHC) Committee is undertaking an inquiry to examine the finances and sustainability of the social housing sector in England.
The deadline for written submissions was Friday 12th May 2023.
‘In recent years the financial pressures for social landlords have increased as they face the demands of building new homes, retrofitting existing stock to improve energy efficiency, remediating stock with cladding and other building safety issues, and tackling issues arising from damp and mould. This inquiry will explore what these demands means for the social housing sector, and how it might try to meet all these priorities.’
LUHC Committee
The LUHC Committee inquiry and shared ownership
The LUHC Committee inquiry is wide-ranging, many of the questions are aimed at housing providers and the scope is not restricted to shared ownership. However, several questions – in different sections – jump out from a shared owner perspective.
The current state of financial resilience of social housing providers
Q5. Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?
New challenges to the social housing sector
Q8. The Affordable Homes Programme includes a high proportion of shared ownership properties. To what extent is this form of tenure desirable for potential purchasers and for social housing providers?
What are the policy and regulatory challenges to the Department and the Regulator?
Q7. Does the Regulator of Social Housing have adequate powers to ensure:
- value for money, and
- low risk
from new sources of finance such as private equity?
Does the Regulator of Social Housing have the resources and skills necessary to regulate the increasingly complex financial and corporate structures proliferating in the social housing sector?
Shared ownership: the consumer perspective
Fortuitously, a new Shared Ownership Resources report explores some of the topics addressed in the LUHC Committee inquiry:
- the cross-subsidy model
- the desirability of shared ownership for potential purchasers
- the value for money and risk of shared ownership, for shared owners
- the increasingly complex financial and corporate structures proliferating in the social housing sector
Unfortunately, the LUHC Committee’s 12th May deadline for submission of responses is prior to the publication date of this report. However, Shared Ownership Resources will send a copy of the report to the Committee once it is published..
Shared Ownership Resources’ written response to the inquiry is provided below.
Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?
This question encapsulates a fundamental tension inherent in the shared ownership scheme, which occupies a far from straightforward role in the cross subsidy development model. Shared ownership is ‘social and affordable housing’, yet it is simultaneously ‘market housing’. It is currently largely delivered under an Affordable Homes Programme yet must provide financial returns to enable the development of further affordable housing development.
In practice, the cross-subsidy model inevitably creates disconnects between the objectives of different stakeholders: government, housing providers and shared owners. At worst, it creates conflicts of interest where the interests of shared owners are often subservient to those of other stakeholders.
The Government’s development funding model creates a need for housing providers to extract value at six key stages in the lifecycle of shared ownership:
- developer’s margin on new build
- the initial equity purchase
- specified rent payable
- subsequent staircasing transactions
- ground rent
- lease extension
But the ongoing process of value extraction by housing associations may result in shared ownership homes becoming increasingly poor value for money, and even financially unsustainable, for shared owners themselves.
This topic is explored in further detail in Chapter 5 of the report Shared Ownership: The Consumer Perspective.
The Affordable Homes Programme includes a high proportion of shared ownership properties. To what extent is this form of tenure desirable for potential purchasers and for social housing providers?
Despite the benefits of the shared ownership scheme there are also hazards for shared owners. These arise from:
- characteristics of targeted homebuyers
- complexity of the model and of ownership structures
- a lack of standardisation and consistency
- inadequate information provision, and
- weak regulation of marketing and delivery.
Monitoring and evaluation largely takes a short-term perspective, with a frequent focus on recent buyers. This makes it extremely hard to answer questions about the desirability of this form of tenure for potential purchasers. However, there is a mounting body of evidence indicating disconnects between government aspirations for the tenure, marketing rhetoric and long-term outcomes and impact for entrants to the scheme.
The question of ‘desirability’ (understood as long-term outcomes and impact, rather than ‘awareness’ or ‘demand’) is a key theme of the report Shared Ownership: The Consumer Perspective.
Does the Regulator of Social Housing have adequate powers to ensure value for money and low risk from new sources of finance such as private equity? Does the Regulator of Social Housing have the resources and skills necessary to regulate the increasingly complex financial and corporate structures proliferating in the social housing sector?
Value for money and low risk
This question does not clearly identify whether the Committee is solely interested in ‘value for money’ and ‘low risk’ for social housing providers, or whether this interest extends to shared owners. (It is notable that shared ownership marketing campaigns often focus on benefits at the expense of transparency around hazards, future financial liabilities and full life cycle costs).
As referenced in the response to the previous question, there is remarkably little publicly available data on outcomes and impact for different shared owner demographics. However, an increasing body of evidence suggests that shared ownership is not always good value for money, and is not necessarily low risk, for shared owners themselves. The powers of the Regulator of Social Housing do not currently appear to extend to tackling these issues.
One of the key recommendations of the Shared Ownership: The Consumer Perspective report is that: Government and the Regulator of Social Housing should undertake robust data collection, evaluation and reporting on the ongoing financial sustainability of shared ownership.
Complexity of financial and corporate structures proliferating in the social housing sector
Does the Regulator of Social Housing have the resources and skills necessary to regulate the increasingly complex financial and corporate structures proliferating in the social housing sector? Certainly, provision of shared ownership is characterised by increasingly complex financial and corporate structures, with implications both for regulation and for shared owners’ experiences of the tenure.
There are indicators that shared owners are being left vulnerable to the consequences of these increasingly complex financial and corporate structures. For example, whether the housing provider is the freeholder – or merely a sub-lessee with a short interest in the lease – can have a profound impact on shared owners’ experiences of the scheme. Likewise whether or not the provider is registered with the Regulator of Social Housing and Housing Ombudsman. Or whether they are a private provider offering a scheme which could easily be confused with ‘standard’ shared ownership but, in fact, carries different risks and is subject to a lesser degree of regulation (by the Regulator of Social Housing, the Housing Ombudsman and/or the Financial Conduct Authority).
Yet it is in the commercial interests of providers of shared ownership (or superficially similar schemes) to promote benefits and to downplay the complexity and hazards involved.
Is the solution to reduce complexity of financial and corporate structures; improve regulatory monitoring, evaluation and reporting of outcomes and impact; or to tackle advertising which is non-compliant with consumer protection legislation and regulatory codes? These aspects are inter-related and action is required on all three fronts..
Be First to Comment